Medium Business exit strategies
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In the last post, I introduced the concept of different business categories and how each of these will be affected differently when establishing Your Business Succession Plan.
Business Succession Planning is relevant for every business owner because one day, you will either want to or have to, exit your business. How this will occur will depend on the type of business you have and the type of outcome you are looking for.
Despite the type of business you have, you’ll want to maximise the cash flow and profits you receive when you exit, whether by planned or unplanned circumstances, particularly if you want the sales proceeds to fund the next phase of your life, or to assist your family to maintain their livelihood.
During the previous post I discussed Category One being the Sole Proprietor and how to maximise their outcome when they exit their business.
In this session, I’ll concentrate on the second of the business types. If your business fits into Category Two, you’ll be the type of business owner that puts a large portion of your time and money back into your business.
Your goal is to build the value of your business in a manner, that, by the time you exit from it, will have grown to quite a valuable asset. More likely to be a medium sized business, your business is not reliant upon your services within it, because you’ve developed a team of people to fulfil all the tasks that keep it operational,and if you haven’t already, you are more likely to be developing a management team to oversee it.
Your succession plan will be different because your most ideal successor is probably already working in your team. Usually they will be familiar with the business clients, systems and processes, products, services and suppliers, so this part of the succession plan becomes a lesser issue when passing on the baton.
Your succession strategy can encompass many more options than that of the Sole Proprietor, but is no less vulnerable if you don’t take the action to formalise an agreement that overcome the six identifiable succession triggers (Dispute, Death, Disability, Divorce, Desire for change, Decision to Retire).
Due to the size of the valuable business asset you have built, funding the eventual buy-out will usually be a larger problem to overcome. As a business owner wanting to extract your business wealth in cash, you will need to think outside the square, and a lot earlier, to ensure your potential successor has the financial capacity to pay you your rightful entitlements. This has become more of a problem in a market place that is inundated with tough financiers who severely scrutinize loans on business transactions and acquisitions.
Quite often business owners in this category are aged between 40 to early 50s, and don’t have a lot of personal assets, but tend to have more debt commitments because all available financial resources have been poured back into the business. If you can relate to this scenario, it makes it more crucial for you to lock in a business succession strategy, that will release you of your debt commitments and protect your interests in a way that will maximise your financial outcome.
Do you want to know how prepared you are to Exit from your Business?
Take the FREE Business Exit Quiz to receive your customised report. It takes about 2-3 minutes to complete.
You can also Download 3 free chapters from the popular book, “Your Business Succession”.
If you haven’t engaged a Business Succession Strategy Team working together for your benefit it’s time to do so. Click here to Book your FREE 15 minute consultation with the Exit Experts Succession Strategist
In the next blog, I will discuss the third category type for succession planning which is the Family Business.
Here’s to your profitable Business Succession!
Leigh Riley
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